National Insurance Contributions Bill

Debate between Catherine McKinnell and Julian Smith

Monday 4th November 2013 Commons Chamber

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I believe this is my first opportunity to congratulate you, Madam Deputy Speaker, on your new role. We have had a good and wide-ranging Second Reading debate on the Bill, and my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood), my new colleague in the shadow Treasury team, made an excellent opening contribution from the Opposition Front Bench. I extend my welcome to the Minister. We have already exchanged pleasantries in a Committee, but I reiterate them now in the Chamber.

[Julian Smith]

As well as exchanging pleasantries and niceties, will the hon. Lady commit now to backing the Government’s policies and give actual support?

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[Catherine McKinnell]

I will repeat the words of my hon. Friend, who said that she was proud to stand in 2010 on a manifesto for a Labour Government who were committed to reducing the deficit but had an economy that was growing. Since then we have seen three years of stagnating growth, wages rising slower than prices, and borrowing not coming down anywhere near the amount the Government promised. I would caution Government Members against trying to rewrite in this Chamber the history of what they have achieved over the past three years.

On that point, let us return to 2011. The Bill taken through this House by the Exchequer Secretary—I welcome him back to his seat—included the introduction of the three-year national insurance holiday, worth £5,000 for employers. The scheme, which was originally announced at the Chancellor’s first Budget in June 2010, was not aimed at supporting just any employers, however, because it was restricted. It did not apply to businesses in London and the south-east or east of England, as we mentioned earlier, and it extended only to new business start-ups, and then only to the first 10 employees of those firms—but, of course, only to those first 10 employees who had been hired in the first year of that business. I hope hon. Members are still with me. [Interruption.] I am sure the Minister is still with me as he designed the dubious policy.

Indeed, serious concerns about the scheme’s complexity were raised at the time by Robert Chote—then at the Institute for Fiscal Studies; now at the Office for Budget Responsibility—who told the Treasury Committee that the policy

“might be a little too complicated to offer best value for money.”

[Julian Smith]

Was the context at the time that the Labour party had left the nation’s finances in the most appalling mess, and that for any incoming Government not to target a policy carefully would have been crazy? According to the Government auditor, three Government Departments had lost complete control of their finances.

[Catherine McKinnell]

Once again, Government Members want to airbrush the past three years of stagnation, lack of economic growth and the failure of the Government’s implementation of that policy. They failed to address the issue quickly enough, so only today are we finally introducing a policy that will help and that will give that support to small businesses. Unfortunately, it is a little too late in the day for some businesses, which have suffered over the last three years, and for the people who have lost their jobs as a result.

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[Catherine McKinnell]

The budget for the policy in the Bill was there, but the Government introduced a failing policy that was badly delivered, badly thought through and not revised in the appropriate time frame. Given the Government’s record on delivering the previous national insurance contributions initiative, what reassurances can the Minister provide that they are on top of delivering this one?

[Julian Smith]

Will the hon. Lady confirm that, having supported the Bill, she will call on all Labour MPs to promote the Bill vigorously and dynamically in their constituencies? Will she make that commitment?

[Catherine McKinnell]

The Opposition support the legislation and it will pass unopposed this evening. It is rightly up to the Government to promote their support for small businesses. As Government Members have said, HMRC should take a proactive role in ensuring that businesses are aware of schemes that are available to support them.

Clauses 11 to 20 relate to the certification scheme for oil and gas workers on the continental shelf, limited liability partnerships and several miscellaneous measures, but I want to focus briefly on clauses 9 and 10, which seek to extend the application of the general anti-abuse rule to national insurance contributions. The GAAR, which came into force on Royal Assent of the Finance Act 2013, incorporates income tax, corporation tax, capital gains tax, inheritance tax, petroleum revenue tax, stamp duty, land tax and the new annual tax on enveloped dwellings.

A number of Opposition Members raised the concern that the GAAR is intended to prevent only “highly contrived tax avoidance” that has “abnormal features”. The man who designed the GAAR, Graham Aaronson QC, believes that it is

“clearly intended to apply only to egregious, or very aggressive, tax avoidance schemes”.

What deterrent effect is such a narrowly drafted GAAR expected to have? As the Government’s flagship policy for tackling tax avoidance, what dent will the GAAR make on the tax gap, which HMRC says is £32.2 billion a year?

During the debate on the 2013 Act, I pointed out that the GAAR is expected to yield £60 million in 2014-15, rising to £85 million by 2017-18. I am more than willing to acknowledge that those are sizeable sums, but the point made in the House back in April was that it represented a drop in the ocean compared with the then tax gap of £32.2 billion.

What has changed since? HMRC’s latest tax gap estimate, of the difference between what is collected and what would be collected if everyone complied with the letter and spirit of the law, concluded that it has increased to £35 billion, a staggering 8.7% increase in the space of 12 months. I accept that many dispute the figure and say it is too low—that it does not include much of what could be incorporated in the figure for tax avoided.

The latest HMRC estimate, which covers 2011-12, indicates that some £15.3 billion of the gap can be accounted for by unpaid income tax, capital gains tax and NICs combined. HMRC suggests that approximately £4 billion of the gap arises out of avoidance “behaviour”. Will the Minister therefore clarify exactly how much of the £35 billion tax gap is thought to be made up of NICs that are unpaid through avoidance? Given that the Bill deals with only the most aggressive or egregious avoidance activity, how much will extending the GAAR to NICs yield for the Exchequer in additional revenue?

The Opposition have raised many other concerns about the GAAR—my hon. Friend the Member for Birmingham, Ladywood mentioned the Swiss deal and the number of holes in that arrangement, which leave a hole in the Government’s estimates. However, there is also the highly subjective double reasonableness test, which can be used to determine whether a means of avoiding a tax can

“reasonably be regarded as a reasonable course of action”.

That subjectivity is helpfully explained in the GAAR guidance, which states:

“The words ‘contrived’ and ‘abnormal’ are not defined, and therefore will be applied in their normal sense”.

We have long argued that that is a fig leaf, or could be used as a fig leaf, for tacitly legitimising tax avoidance that does not fall within those definitions. We tabled amendments to ensure that the GAAR would be reviewed, and to assess its effectiveness.

Most critically, we have questioned the independence of the advisory panel established by the Treasury to oversee the GAAR. At the time, I said:

“What a tax expert considers to be reasonable might be regarded differently in the eyes of a member of the public. Indeed, many tax experts will differ on what they believe to be reasonable tax planning, as opposed to something egregious that would fall under the GAAR.”—[Official Report, 17 April 2013; Vol. 561, c. 425-426.]

What has changed since April? A matter of weeks after being hand-picked to deliberate on the Government’s flagship anti-avoidance policy, one panel member was caught on camera at a tax planning conference offering tips to people on how to keep their money

“out of the Chancellor’s grubby mitts”.

HMRC’s website simply tells us:

“David Heaton resigned from the Advisory Panel on 13 September 2013. Arrangements are being put in place to appoint a successor.”

It would be helpful to hear from the Minister exactly what those arrangements are, when she expects the appointment to be made and, most importantly, how she and her ministerial colleagues will ensure that this never happens again. If the GAAR is to retain or, indeed, regain any shred of credibility, what are the Government going to do about that?

As we have said, we back the Bill, especially the main provision—the employment allowance. We repeatedly called for changes to the previous national insurance holiday scheme and we consistently warned that it would be a flop. Many of the changes we called for will be introduced in the employment allowance, but it is disappointing that for hundreds of thousands of small businesses it has taken almost four years to deliver the policy that they need. They deserve better, but the Bill is a small step in the right direction today.